This is quoted directly from TurboTax's "Tax Help"Originally Posted by ARamos8
(When they speak of "This Schedule" they're talking about Schedule C)
What should I consider before I complete my business income and expenses?
Make sure that your business is actually a business and not a hobby.
You can report your business income and expenses on this schedule only if you intend to make a profit. Don't report your income and expenses here if this is a hobby, even if you make a profit from it. In other words, you can't deduct expenses for your hobby simply by calling it a business.
The IRS automatically considers your business a hobby if you show a loss for three or more of the last five years. There's an exception to this rule. Horse breeding or racing are considered businesses if they show a profit in at least two of the last seven years.
If your business is considered a hobby:
- The IRS will not allow you to deduct more expenses than the amount you report as income.
- You must report your income as "Other income" instead of on this schedule.
- You can deduct your expenses only on Schedule A, Itemized Deductions.
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